A plan for economic growth

  1. A plan for economic growth

    On July 18, the Hoover Institute released a paper by four prominent economists, John Coogan, Glenn Hubbard, John Taylor and Kevin Warsh entitled “On the Prospects for Higher Economic Growth.” As you would expect, given the source, the paper outlines “conservative-minded” strategies advocated to produce economic growth: lower taxes, less regulation, rationalized entitlements and welfare, greater investment. The target indicated is 3 per cent annually versus current Congressional Budget Office projections of 1.8 per cent. With extensive statistics, the economists make the point that this combination of policy changes will promote economic growth by increasing employment, wages and productivity. You can find it here. The caveat to all this is contained in this quotation from the paper: “It is important to keep in mind that attaining 3 per cent annual GDP growth rate is based upon enactment and implementation of a package containing significant tax reform, regulatory reform, budget reform and monetary reform,” all of which requires leadership from Congress and the Federal Reserve. Given the current state of political division — pigheadedness? — the probability of all these things coming to pass is remote. Still, strong voices at the Fed advocating for them, as well as lightening banking regulation, should have an effect. There will be voluminous testimony before Congress and jawboning of its members. There will be pressure from business and financial groups, and, most of all, it will become clearer that these moves are necessary to boost the economy. While Republicans in the past have produced policy papers like the one above,…

  2. How to think about Risk

    We read a lot every day, from company financials to research reports to general interest publications. Occasionally we run across something that succinctly condenses a large topic to something much more manageable. The following link does just that on the topic of investing risk and reminds us that we have more control than we think. Click here to read the article. Please click here to view our disclosures.

  3. Social Security – Don’t count on it too much

    The following Bloomberg article offers an updated look at the real state of Social Security and reminds us to take control of our retirement savings. Click here for the Bloomberg article. Please click here to view our disclosures.

  4. Market Outlook – Q2 2017

    Equity and bond markets posted positive returns for the quarter, which were spread evenly throughout.  Longer interest rates ended slightly down, giving fixed income investors a small boost.  First quarter earnings reports revealed a 14% year-over-year improvement, the best in over five years.  Supporting these gains was the best European growth in seven years, particularly benefiting domestic companies with large international operations.  The range comprising that average is wide with Financials up 20%, and Tech up more than 17%, while Utilities were up 5% and Telecom was down 5%.  This also explains the large gap between the increase in earnings and our own GDP.  We are encouraged to see our two economies finally moving in the same direction again and this supports our expectation for earnings growth of 8-10% through year end. Among larger companies, revenue growth is picking up.  Using the S&P 500, average revenue growth over the last five years through Q1 2017 was 5.6%.  Over the final twelve months of that period it was 7.4%.  Since 2009 companies have better managed their expenses and bought back a great deal of their own equity, both of which contributed to rising earnings per share in the face of relatively flat revenue growth.  Increasing the revenue line provides a more direct and longer-lasting path to earnings growth and we believe this will continue for now.  Trading currently at 17.7x next years projected earnings, stocks remain reasonably priced. This should keep the stage set for continued equity appreciation through year-end, though perhaps at a slower pace…